AUS
NZ
UK
CA
USA
IND
.jpg)
Lately, house prices have been soaring in NZ. RBNZ is being held liable for it, as the central bank continues to print money to pull the economy out of the COVID-19 induced recession.
Finance Minister Grant Robertson had written to Adrian Orr, RBNZ Governor to consider house prices while formulating the monetary policy, as housing price instability is damaging for achieving the government objectives of reduced inequality and poverty as well as creating a more inclusive economy.
Orr responded to the letter by welcoming the opportunity to contribute to Robertson’s programme that aims at housing affordability. However, he defended the central bank’s actions to lower interest rates and emphasised on the role played by higher housing prices in helping it strive to reach its employment and inflation goals.
Reinforcement of LVRs to lower risky lending
On 25 November, RBNZ released its Financial Stability report, published twice in a year where the central bank outlines the power of NZ banks and broader financial system of the country.
RBNZ accepted that higher house prices provided a buffer for households to adjust to new economic conditions. However, the central bank cautioned that high prices increased the risk of a sharp correction in the medium term.
ALSO READ: RBNZ aiming towards reintroduction of LVR mortgage restrictions
The central bank has also decided to bring back the loan to value ratio restrictions next year as banks have been lending to higher-risk borrowers.
RBNZ stated that if households were not capable of paying their mortgages and the value of their residential properties was to collapse dramatically in a prolonged economic crisis, the financial system would be susceptible to significant losses.
National and Green party’s take on the housing plan
Judith Collins National Party Leader stated that asking RBNZ to see what more could be done to stop the surge in house prices can make a difference.
ALSO READ: RBNZ plans to increase stimulus, but questions develop around negative rates
She added that the primary emphasis needs to be on the building of new homes, which is why National has been continually talking about the Resource Management Act (RMA) and its critically needed overhaul.
However, the Green Party has expressed dissatisfaction in government’s housing plan stating that it would be a disservice to Kiwis as the government persists in eliminating measures that can aid in fixing the housing crisis.
DO READ: Has NZ housing market reached new heights?
The current housing plan of Labour includes removal of building barriers by revoking RMA and persisting with KiwiBuild even after first-term failures.
However, Green Party Finance spokesperson Julie Anne Genter stated that RMA fixing is only one factor and will not fix property speculation or land banking. Measures like increasing benefits and building more affordable, quality and community houses should be taken to stimulate the economy.
Bottomline
In the aftermath of the pandemic, critics have suggested that the Reserve Bank is merely using traditional policy instruments to avert deflation. Preventing the bank from using them does not alter housing affordability and may cause other economic problems.
Housing is unaffordable since not enough houses are available. Housing supply needs to be speeded up to change this situation.
